Acquisition Accounting

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DEFINITION of 'Acquisition Accounting'

A set of formal guidelines describing how assets, liabilities, noncontrolling interest and goodwill of a target company must be reported by a purchasing company on its Consolidated Statement of Financial Position. With acquisition accounting the fair market value of the acquired firm is allocated between the net tangible and intangible assets portion of the balance sheet of the acquiring firm; any difference is regarded as goodwill. Also called "business combination accounting."

INVESTOPEDIA EXPLAINS 'Acquisition Accounting'

International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) require all business combinations to be treated as acquisitions for accounting purposes, meaning that one company must be identified as an acquirer and one company must be identified as an acquiree even if the transaction creates a new company. In the past, a method called "purchase accounting" was used in business combination accounting, but standard changes made acquisition accounting the only acceptable method.